Mining for equity

As the largest South American economy, Brazil has long been seen as a source of investment opportunity and commodities. By rolling out new matching and connectivity technology, local firms are now opening a direct route to the equities market for overseas players.
By None

As the largest South American economy, Brazil has long been seen as a source of investment opportunity and commodities. The country experienced significant GDP growth over the last decade, at times underperforming compared to the other BRIC countries, but supported by its large agricultural, mining and manufacturing sectors. High commodity prices and export demand from the US, Argentina and China, its three largest partners, have all helped.

The growth has translated into investment from overseas. As of 31 December 2007, the total value of shares in Brazil had reached $1.37 trillion, but like the rest of the world, it suffered during the financial crisis. The national stock market, São Paolo-based BM&F Bovespa, experienced massive volatility in 2008 as investors withdrew from the market in the face of global economic uncertainty. By the end of 2008 the total value of shares had dropped to $589 billion.

But confidence is returning. Brazil's central bank predicts GDP growth of 5% in 2010 and the equity market is ripe for investment, with over 500 stocks listed on BM&F Bovespa. The total value of publicly traded shares recovered to $1.338 trillion as of 31 December 2009 – by comparison the current total value of shares listed on the London Stock Exchange is $5.51 trillion and for the exchanges owned by NYSE Euronext Group it is $21.5 trillion.

The speed at which the market is changing is quite incredible. This in part is a reflection of new technologies being applied to longstanding relationships. Spain, which historically has had strong trade links with other Hispanic countries, is seeing a growth in appetite for DMA among its buy-side community and that is naturally extending into South American markets. With brokers and exchanges developing infrastructure, trades are already flowing. Of the four BRIC economies, Brazil stands out with its high level of connectivity that continues to help the country establish links with the rest of the trading world.

In the last year Nasdaq OMX and BM&F Bovespa signed a bilateral agreement to allow trading from brokers in their respective countries to trade on the other's exchange via local participating brokers. BM&F Bovespa has announced other technology initiatives that are intended to create the infrastructure necessary to support trading of the type seen in US and European markets.

Across the market, investment in FIX connectivity has provided a standardised technology that allows orders to be passed relatively easily.

Local and regional brokers brokers are investing in the order routing and low-latency technologies that enable them to process trades that meet the requirements of buy-side firms from developed markets. By signing up to the networks of execution management system providers, they are able to route flow directly from the order books of asset management firms across the Atlantic or the Panama Canal.

Not to be left out, almost all of the established bulge-bracket brokers have launched electronic services to facilitate access to the market in Brazil. In April Barclays Capital announced that its Brazilian subsidiary had become a member of BM&F Bovespa allowing the firm to trade on the exchange.

With the stock exchange, local and global brokers all building the capacity to provide trading for foreign investors and high-frequency flow, the ground has been prepared for Brazil to continue its rise in equity trading volumes in the near future.

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